Regulating and financing Social Housing in the EU

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Regulating and financing Social Housing in the EU

• State Aid to Social Housing
• Training Workshop
• 23rd May 2008 Housing Europe Centre

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SH development of EU trade community interest

•  Development of trade within the Union
• Social housing is fully in line with the basic
  objectives of the EC-Treaty. It is a legitimate
  element of public policy and as it is limited to
  what is necessary it is in the interest of the
  Community that social housing is supported. 
• Mario Monti
• Member of the European Commission
• SG (2001) D/289528 of 03.07.01

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Program

• STATE AID TO SOCIAL HOUSING
• SESSION I current regulations
• SESSION II notifications and complaints
• SESSION III new opportunities of the Lisbon
  Treaty

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I Why the EU Law applies to SH ?

• The EU law of competition applies to
  UNDERTAKINGS,
• UNDERTAKINGS any entity engaged in an ECONOMIC
  ACTIVITY,
• ECONOMIC ACTIVITY activity provided in a given
  market.
• The EU law of internal market applies to
  SERVICES, (art.50)
• SERVICES activity provided with an economic
  conterpart
• The EU law of Public procurement applies to
  PUBLIC AUTORITHIES or any PUBLIC BODIES
• SH can be seen as services, SH Landlords as
  Undertakings or
• Providers, as well as public bodies. EU law can
  apply in
• Financing SH gt State Aid EU control (art.87, 88,
  862 if SGEIs)
• Regulating SH gt Exclusive and Special Rights
  (art.861)
• Organization of SH gt Public tendering (services
  concessions)
• SH must also apply the GENERAL PRINCIPLE of the
  Treaty such as
• Transparency equality of treatment non
  discrimination - proportionnality

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What is a State Aid ? 4 criterias

• Economic advantage for an undertaking (any body
  providing an activity in a given market)
• Given by the State or by State ressources (State,
  Regions, local authorities)
• With a specific dimension (reserved to specific
  understakings or specific products)
• Affect the development of trade in the EU (in
  fact or potentialy)

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Two main regimes of State Aid to Social Housing

• SOCIAL HOUSING in your country ?
• A common economic activity gt obligation of
  notification to the european Commission gt small
  and time limited supports to develop affordable
  housing in an open way to every interested
  investors (ex swedish regime for elderly or
  students)
• A service of general economic interest
  exemption of notification upon conditions gt a
  permanent regime of subsidies or financing given
  to SHU untrusted by a specific and permanent
  mission of general interest (ex the  SGIs  of
  HLM in France or in Germany)

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State aids rules gt legal base of art. 87 and 88

• Article 87
• 1. () any aid granted by a Member State or
  through State resources in any form whatsoever
  which distorts or threatens to distort
  competition by favouring certain undertakings or
  the production of certain goods shall, in so far
  as it affects trade between Member States, be
  incompatible with the common market.
• Article 88
• 1. The Commission shall, in cooperation with
  Member States, keep under constant review all
  systems of aid existing in those States. It shall
  propose to the latter any appropriate measures
  required by the progressive development or by the
  functioning of the common market.
• 2. If, after giving notice to the parties
  concerned to submit their comments, the
  Commission finds that aid granted by a State or
  through State resources is not compatible with
  the common market having regard to Article 87, or
  that such aid is being misused, it shall decide
  that the State concerned shall abolish or alter
  such aid within a period of time to be determined
  by the Commission.

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SGEI primacy of missions gt art.862, art.16

• Article 86
• 2. Undertakings entrusted with the operation of
  services of general economic interest (SGEI) ()
  shall be subject to the rules contained in this
  Treaty, in particular to the rules on
  competition, in so far as the application of such
  rules does not obstruct the performance, in law
  or in fact, of the particular tasks assigned to
  them. The development of trade must not be
  affected to such an extent as would be contrary
  to the interests of the Community.
• Article 16
• Without prejudice to Articles 73, 86 and 87, and
  given the place occupied by services of general
  economic interest (SGEI) in the shared values of
  the Union as well as their role in promoting
  social and territorial cohesion, the Community
  and the Member States, each within their
  respective powers and within the scope of
  application of this Treaty, shall take care that
  such services operate on the basis of principles
  and conditions which enable them to fulfil their
  missions.

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Why the new Lisbon Treaty change rules for SGEI ?

• New legal basis to secure by regulations between
  the European Parliament and the Council the
  performance of the missions of general interest
  (art.16), in particular on economic and financial
  conditions
• New Protocol on SGI set clear and explicit
  governance principles following the dispute on
  the manifest error on SH as a SGEI between the
  Dutch Government and the European Commission
• New legal base for the Charter of Fundamental
  Rights and for its art.36 on access to SGEI and
  art.34 on access to housing assistance.

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Why the new Lisbon Treaty change rules for SGEI ?

• New legal basis to secure the performance of the
  missions of general
• Interest (art.16)
•  The European Parliament and the Council, acting
  by means of regulations in accordance with the
  ordinary legislative procedure, shall establish
  these principles and set these conditions without
  prejudice to the competence of Member States, in
  compliance with the Treaties, to provide, to
  commission and to fund such services. 
• These principles and conditions refer to the
  article 16  Principles and conditions,
  particularly economic and financial conditions,
  which enable them to fulfil their missions 

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EU SGEI governance gt New SGI Protocol

• THE HIGH CONTRACTING PARTIES, WISHING to
  emphasise the importance of
• services of general interest, HAVE AGREED UPON
  the following interpretative
• provisions, which shall be annexed to the Treaty
  on European Union and to the
• Treaty on the Functioning of the European Union
• Article 1
• The shared values of the Union in respect of
  services of general economic interest within the
  meaning of Article 16 of the Treaty on the
  Functioning of the European Union include in
  particular
• the essential role and the wide discretion of
  national, regional and local authorities in
  providing, commissioning and organising services
  of general economic interest as closely as
  possible to the needs of the users
• the diversity between various services of general
  economic interest and the differences in the
  needs and preferences of users that may result
  from different geographical, social or cultural
  situations
• a high level of quality, safety and
  affordability, equal treatment and the promotion
  of universal access and of user rights.
• Article 2
• The provisions of the Treaties do not affect in
  any way the competence of Member States to
  provide, commission and organise non-economic
  services of general interest (NESGI).

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New legal base for the Charter of fundamental
Rights

• Same legal value as the Treaty
• Art.36 Access to services of general economic
  interest. The Union recognises and respects
  access to services of general economic interest
  as provided for in national laws and practices,
  in accordance with the Treaty establishing the
  European Community, in order to promote the
  social and territorial cohesion of the Union.
• Art. 34.3 In order to combat social exclusion
  and poverty, the Union recognises and respects
  the right to social and housing assistance so as
  to ensure a decent existence for all those who
  lack sufficient resources, in accordance with the
  rules laid down by Community law and national
  laws and practices.

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II Financing SH chose the way to reach legal
certainty
NESGIs
No EU Matter
Non economic activity
other purely social
OK
Social Housing
Yes gt no State aid
Yes gt compatible State aid
Altmark ruling criteria
SGEIs
Altmark package criteria
Economic activity
No gt State aid
Art.87
Non SGEIs
State aid
No gt State aid
Notification
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Option 1 SH as a non-economic activity ?

• Purely social nature activity can be considered
  as non economic activity such as
• Compulsory insurance schemes functionning under
  the principle of solidarity, offering insurance
  benefits independently of contributions
• Public education financed as general rule by the
  public budgetand carrying out a State task in the
  social, cultural and educationnal fields towards
  the population.
• ECR criterias to be met as purely social nature
  
• No market at all
• Contribution of users independant from the real
  cost Free of charge or low contribution
• Principle of solidarity cost fully paid by the
  State
• Ex  Public Health service  in UK, social
  security, primary education

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Option 1 current statement of the Commission on
SH

• SH is an economic activity in competition Law
• SH Landlords are Undertakings (SHU) regardless of
  the legal status of the entity of the way in
  which their are financed
• SH as an economic activity concerned for example
  
• Provision of funds for SH
• Provision of general mortgage funds to SH
• Provision of affordable housing schemes aiming at
  providing low-cost housing
• Provision of rental subsidy schmes and grant
  schemes for elderly and disabled persons
• Provision of affordable housing for socially
  disadvantaged households
• Provision of infrastructure ancillary to social
  dewelling such as roads, shops, playgrounds,
  place of recreation parks, allotments, open
  spaces, sites for places of worship, factories,
  schools, offices and others buildings or land and
  such other works and services which is needed to
  ensure a good environment for social housing.
• SH is a service in the internal market Law
• SH Landlords are Providers (SHP) in the internal
  market Law

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Option 2 SH as an economic activity

• Option 2-1 SH as a common commercial activity
• Competition rules as state aids rules fully apply
  to SHU without any derogation as any commercial
  economic activity (art.87 and 88)
• Notification of SH schemes to DG COMP to check
  the compatibility (art.88.3)
• Example Swedish scheme for  SH for elderly 
• Option 2-2 SH as a SGEIs activity
• Competition rules as state aids rules doesnt
  apply if it is necessary for the performance of
  the tasks assigned to SHU (art.86.2)
• SHU must be entrusted with an operation of SGEIs
  by an official Act, whereby a public authority
  confers responsability to SHU for the execution
  of task of general interest ie public services
  obligations
• SH Schemes are compatible with the Treaty and
  rules of competition under conditions to be met
• SH Schemes could be not qualify as state aids or
  could be qualified as compatible state aids
  following the last ruling of the Court (ALTMARK
  RULING)
• No notification of SH schemes to DG COMP

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Option 21 SH as a normal commercial activity

• Example of the swedish  SH for elderly 
• Non SGEIs activity in swedish law but a  normal
  economic one 
• Notification of the swedish Gvt to DG COMP SH
  for elderly scheme of 5 years program (270
  millions euros)
• Decision of DG COMP compatible with art.87
  because
• Time limited scheme
• Current failure of the Housing Market for elderly
  needs
• Scheme opened to all Landlords (no
  discrimination, no exclusive SHU)
• Low level of the subsidies (10 of the building
  cost)
• Local based activity controled by local
  Authorities
• But, following a complain of private investors,
  others state aids to Municipal Housing Companies
  (MHCs) could be considered as incompatible
  because of the lack of notification of the
  swedish government and the lack of any SGEI
  entrustment of MHCs in swedish law (cf. swedish
  cases in Session II).

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Option 22 SH as a SGEI activity Options

• Option 221 - Altmark ruling criteria are met gt SH
  schemes are not State aids gt no EU control
• Option 222 - Altmark ruling criteria are not met
  gt SH schemes are State aids gt but SH schemes can
  be qualified as compatible State aids if criteria
  of the Altmark Package are met gt no EU control
• Option 223 - Altmark ruling criteria are not met
  gt SH schemes are State aids but they dont met
  the criteria of the Altmark Package gt SH schemes
  must be notified to DG COMP for EU control

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Option 22 SH as a SGEI scope ?

• The question of the scope of SH as a SGEI is on
  current dispute
• between the European Commission and the Dutch
  Government.
• EU control of manifest error of the qualification
  of SGEI
• For the European Commission, as the SGEI is
   social , it must be defined exclusively in
  relation with needed persons
• Members State are free to define SH as SGEI by
  the Treaty but the European Commission is
  entrusted by the Treaty to control the manifest
  error of such a qualification of SGEI.
• For the Dutch government, SH as a SGEI must be
  allocated in priority to needed persons, but also
  available for others to preserve social mix.
• New SGI Protocole of the Lisbon Treaty
• In reaction to this dispute, the Dutch Prime
  Minister introduce a new SGI Protocole in the
  Treaty of Lisbon to reinforce its competence to
  define SH as SGEI in relation with cultural and
  local based collective expression of housing
  needs and social mix. (see slide nX)

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Manifest error of the Dutch SGEIs of Social
Housing
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Social Housing in the EU 27
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STATE AID OR NOT STATE AID / large evolution in
case-law

COMPENSATION NO AID UNDER CERTAIN CONDITIONS
NO AID
NO AID
AID
ADBHU C-240/83
Banco exterior C-387/92
FFSA T-106/95
SIC T-46/1997
FERRING C-53/00
ALTMARK C-280/00
2003
2001
1985
1994
1997
2000
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Option 221 Altmark ruling criteria are met gt No
State Aid

• 4 cumulative criteria to be met
• SHU must have public service obligations to
  discharge
• Parameters of compensation must be set in advance
  in an objective and transparent manner
• Compensation cannot exceed what is necessary to
  cover the costs incurred in the discharge of the
  public service obligations
• If SHU is not chosen pursuant to a public
  procurement procedure, the level of compensation
  needed must be determined on a basis of the costs
  which a typical SHU, well run and adequately
  provided would have incurred.
• If those 4 cumulative criteria are met,
  compensations of public service
• obligations are not State aid gt No EU control
• If they are not met, compensations are State aids
  but could be
• qualified as compatible State aids (option 222)
  or as incompatible
• State aids to be notified for an EU control
  (option 223)

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Option 222 SH as a SGEIs activity
compatibility

• State Aids to SHU are compatible, no notification
  is needed, if the
• following conditions are met
• ENTRUSTMENT SHU must be entrusted of the
  responsability for operation of the SGEIs by way
  of one or more OFFICIAL ACT which specify
• The nature and the duration of the public service
  obligations
• The SHU and territory concerned
• The nature of any exclusive or special rights
  assigned to the SHU
• The parameters for calculating, controlling and
  reviewing the compensation
• The arrangements for avoiding and repaying any
  overcompensation
• COMPENSATION SH Scheme must be defined as a
  fair compensation of costs of SH
• Not exceed what is necessary to cover all the
  costs of SH
• Take into account the relevant receipts (net
  costs of SH)
• Take into account a reasonable profit on any own
  capital invested
• Overcompensation must be controled and paid back
• For SH, an overcompensation of 20 can be
  accepted and may be carried forward to the next
  period

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Option 223 Altmark Package criterias are not met

• If Altmark Package criteria are not met
• Compensations cannot benefit from the decision of
  compatibility of the Altmark Package
• Compensations fall under the art.87 of
  incompatible State Aids
• Compensations must be notified to DG COMP for an
  EU control (art.88)
• The EU control can qualify compensation as
  compatible State Aids or as incompatible. In that
  case, SH schemes must be abolished and redefined
  in order to meet EU criteria of compatibility

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III How to chose to provide SH ?

• Public authorities at the national, regional and
  local level are free to
• organise SH and to chose
• To deliver SH directly (as Council Housing) or
  through an  in-house  entity (option 31)
• To deliver SH by discharging public service
  obligations to external entity or entities such
  as SHU or private investors (option 32) by
• Granting them an exclusive or special rights (SHU
  registration or autorisation schemes for exemple)
  (option 321)
• A contract of services concession (option 322)
• A contract of public services procurement (option
  323)
• All those options can coexist

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Option 1 Direct provision of SH

• 2 options
• Option 1 Direct provision of SH by the public
  authority gt Full discretion of the public
  authority, public procurement rules do not apply
  in the decision.
• Option 2 Provision of SH through an internal
  provider, ie a legally independant entity
  considered as internal to the public authority or
   in house . Public procurement do not apply in
  the choice when 2 conditions are met
• Public authorities must exercice over the
  internal provider a control which is similar to
  that which it exercices over its own departments
• Internal provider must carry out the essential
  part of its activities with the controlling
  public authority.

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Option 2 External provision of SH

• 3 options
• Granting SHU an exclusive or special rights (SHU
  registration or autorisation schemes for exemple)
  (option 21)
• A contract of services concession to SHU or
  others undertakings (option 22)
• A contract of public services procurement to SHU
  or others undertakings (option 23)

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Option 21 Exclusive and special rights to SHU

• Exclusive and special rights for SH undertakings
  gt art.861
• Those exclusive of special rights must be
  necessary for the performance of the mission of
  general interest and proportionnal to the
  objective.
• Grant of exclusive and special rights to SHU must
  respect the general principle of the Treaty as
  transparency, non discrimination and equal
  treatment.
• Then, grant of exclusive and special rights to
  SHU must be made through a adequat publicity
  procedure.
• Special rights as a form of autorisation scheme
  of SH providers are not cover by the services
  directive under conditions (see slide X).

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Option 21 Special rights (autorisation schemes)

• Special rights as a form of autorisation schemes
  for SHU are excluded
• under conditions from the EU screening of the
  services directive
•  Social services relating to social housing 
  are excluded from the scope of the services
  directive and from the EU control on the contents
  of the autorisation schemes.
• To be excluded from the scope of the directive,
  SHU must be qualified as  providers mandated by
  the State  (or any public authorities) or be
  recognised as charities.
• As  providers mandated by the State , DG MARKT
  considers in a handbook that SHU  must be under
  an obligation to provide  SH to be excluded from
  the scope of the services directive.
• SHU which are not under  an obligation to
  provide SH  remain in the scope of the services
  directive and of the EU screening of SH
  registration schemes.

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Option 22 services concession to SHU

• Entrustment through a services concession
• Service concession SHU must assume the
  operating risk of the exploitation of the SH and
  charge users with a price set in the contract of
  concession (for ex. rent)
• Contract of services concession are excluded from
  the scope of public procurement directive
• Contract of services concession must respect the
  general principle of the Treaty as transparency,
  non discrimination and equal treatment.
• Then, contract of services concession to SH
  undertakings must be made through a adequat
  publicity of the public authoritys intention to
  conclude such a contract.

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Option 23 Public service contract to SHU

• Untrustment of a SHU through a public service
  contract
• The public authority pays SHU to provide a
  service but SHU do not assume the operating risk
  of the exploitation of the service.
• Public service contracts are under public
  procurement directives.

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Special rights for financing SH gt French case -
art 861

• The french case of special rights of the SGEI of
  financing SH
• Following a complaint of banks, decision of the
  Commission
• Special rights of the SGEI of financing SH are
  obstacles to the freedom of establisment and are
  not justified by an  overriding reasons relating
  to the public interest 
• Special rights are not necessary to the
  perfomance of the mission of general interest of
  financing SH. Derogation of art. 862 cannot be
  applied to that case.
• Then special rights must be abolished (art.861)
  because they are considered as unjustified
  obstacles to the freedom of establisment in the
  EU.
• France decides to go to the Court against this
  decision

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Conclusions Key issue of the entrustment of SHU

• Entrustment of SHU a passport for a legal
  certainty in transparency
• A core criteria for the Altmark Package decision
  to be applied gt
• Member States report on SHU entrustments to DG
  COMP before 19 december 2008
• Evaluation of the decision by december 2009
• A condition to be excluded from the scope of the
  services directives
• Transposition in national law by end 2009
• A core criteria to justify special rights granted
  to SHU
• As a tool to discharge long term public service
  obligations to SHU (continuity of the services)
• As SGEIs, official act or acts of entrustment
  must specify
• The mission and the duration of specific
  obligations of SH
• The exclusive or special rights granted to SHU
• The territory of activity of SHU
• The criterias of calculation of the compensations
  for SH
• The controle of overcompensations and the
  conditions of reimbursment

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Conclusions Lisbon Treaty using the potential

• SGI Protocol wide discretion of MS to define,
  organise, and finance SH as a SGEIs.
• SGI Protocol definition of SH as a SGEIs based
  on disparity and diversity principle relating to
  local needs and collective choices such as social
  and urban mix.
• SGI Protocol a new tool to implement the
  principle of universal access to SH as a SGEI in
  coherence of the EU fundamental Right of access
  to SGEI (art.36 of the Charter).
• SGI Protocol a new tool for MS to fight
  against the residual conception of SH as a social
  SGEI of the Commission (see the Dutch case based
  on IRL case in slide X).
• New article 14 A new legal basis to develop new
  regulations to secure best economic and financial
  conditions for SH as SGEIs.

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Legal reference / SH regulation and finance
schemes

• Altmark ruling gt C 280/00 of 24.07.03
• Altmark package - SH gt Decision C (2005) 2673 of
  28.11.05
• Services concession rules gt C 324/1998 of 7.12.00
• Irish cases gt Housing Finance Agency schemes
• Case N 209/2001 of 03.07.2001 SG (2001) D/289528
• Case N 89/2004 OJ C 131 of 28.05.05
• Case N 395/2005 OJ C 77 of 05.04.07
• Dutch case gt Case E 2/2005 (ex NN 93/02) of
  14.07.05
• Swedish cases gt European Property Federation
  complain / MHCs CP 115/02 of 30.05.05
• French case / financing SH gt Decision C (2007)
  2110 of 10.03.07
• French HLMs tenders ruling gt C 237/99 of 01.02.01
• SH as a social SGI (SSGI) gt
• COM (2006) 177 final of 26.04.06
• COM (2007) 620 final of 17.10.07
• COM (2007) 725 final of 20.11.07